20 August 2008
IFI involvement in mining and oil projects in the Timan-Pechora basin raises environmental and social concerns.
The Komi Republic, a mostly sub-arctic region in the Russian Federation just west of the Ural Mountains, is the site of substantial hydrocarbon and mining development. In the Timan-Pechora basin, oil fields are a dominant feature. The Komi region however, is also home to the Virgin Komi Forests, the largest virgin forest in Europe and a UNESCO World Heritage site since 1995. The region’s fragile environment has been threatened by years of irresponsible oil development, resulting in oil spills and land and water pollution. Besides these environmental dangers, the Save Pechora Committee, a local civil society organization in the Komi Republic, has pointed to problems with media and political interference by Lukoil, the main oil company operating in the region. Civil society groups are also concerned over the effects of extractive development on indigenous peoples.
Despite these concerns, the international financial institutions (IFIs) have made multiple investments in extractive industry projects in the Komi Republic. In 2007, the European Bank for Reconstruction and Development (EBRD) approved a $300 million loan to Lukoil to fund sustainability and environmental clean-up projects in Russia. However, at the time of the EBRD Annual Meetings in 2008, the Save Pechora Committee had been unable to identify any environmental projects in the Komi Republic using EBRD funding.
In August 2008, the EBRD disclosed another oil project in the region. The Pechora Energy project was due for the first phase of approval at the end of 2007. The Bank Information Center objected to the proposal, particularly its B/1 classification and the potentially serious environmental impacts. Nevertheless, the project reappeared in August 2008 with the same B/1 screening and $50 million in EBRD financing. The new board date is set for September 9. The project intends to use existing infrastructure to further develop oil exploitation at the Luzskoye field.
Besides oil, in 2004 the International Finance Corporation (IFC) and the EBRD agreed to jointly finance the expansion of the Middle-Timan Bauxite Mine and an appraisal study of an aluminum refinery, as the first phase of the Komi Aluminum Project. In 2007, the banks began providing $150 million in funding. The mine is being developed by OAO Bauxite Timana, owned by SUAL Group (80%) and the Komi Republic government (20%). This project, screened as category A, carries significant environmental and social risks. In particular, the mine has adverse effects on a local indigenous group, but the IFC has not recognized the group as indigenous, refusing to apply the standards set forth in its policy on indigenous peoples.
The EBRD will require Pechora Energy to publish its payments to the Russian government. The Timan Bauxite Mine project was signed prior to IFC and EBRD adoption of requirements that extractive industry clients disclose their payments to the government. As a result, these payments will likely not be disclosed.
As these projects reveal, the Komi Republic is rich in natural resources, but the IFIs have a responsibility to the region’s people and its environment to ensure that any IFI-financed extractive projects comply with best international practices and with the respective IFI’s own social and environmental policies. Given the concerns raised by civil society groups, particularly the Save Pechora Committee, the Bank Information Center is closely monitoring IFI activities in the Komi Republic.
Sources
Environmental Activity of the Lukoil Company in Komi, NGO Issue Paper, Save Pechora Committee, 2008 (Bankwatch website, Acrobat pdf)
Lukoil Environmental Loan (EBRD website)
Pechora Energy LLP (EBRD website)
Summary of Project Information - Timan (IFC website)
Project Summary Document - Bauxite Mining (EBRD website)
Environmental Assessment Documentation, prepared by CSIR Environmentek, December 8, 2003 (IFC website, Acrobat pdf)
Environmental Analysis, Early Works Assessment, prepared by CSIR Environmentek, April 2004 (EBRD website, Acrobat pdf)
Virgin Komi Forests (World Heritage website)
EBRD November 2007 Project Pipeline Update U.S. & Foreign Commercial Service and U.S. Department of State, November 28, 2007 (Buy USA website, Acrobat pdf)
For more information, see BIC’s Russia Key Issues page.